Ban could force 25% of advisors out of industry

Ban could force 25% of advisors out of industry

Ban could force 25% of advisors out of industry An advisor who’s seen the carnage of UK regulatory reform up close is expecting to see a big cull of advisors if the OSC moves to drop embedded commissions.

When Kathy Waite, an advisor with Eureka Investor Guidance, began as an advisor with Prudential PLC in the U.K., she said that “there were 16,000 embedded-commission-based advisors with the firm and by 2004, they were down to just 325.”

“There wasn’t enough money in it for them to stick around and many just set up independent practices but there weren’t able to compete so they fell out of the industry,” the wealth advisor with Your Net Worth Manager told WP in an interview. “It’s difficult to give sound advice when you’re required to sell your company’s brand product that just might not be right for the client.”

Regulatory reforms led to these numbers, she said, and were followed by changes in 2008 when embedded sales commissions were banned, resulting in 11,000 advisors, representing 11 million consumers, making their exit from the industry.

This is the reality that many advisors in Canada are facing if the Ontario Securities Commission (OSC) decides to ban embedded-commission sales, following the regulatory wave seen in the U.K.

Her comments back up sentiment felt from an advisor in B.C. who told WP that he expects a 20 to 25 per cent drop in the amount of advisors in the field due to the OSC ban on commissions.

“We’ll probably see a 25 per cent drop in the amount of advisors we have in Canada and there’s no reason for it,” the advisor told WP. “What’s this going to do to the economy? All of those people being beat out of the business and it’s illogical for them to make such a decision without full assessing the impact.”

“It’s going to cost jobs. A significant number of advisors will be out of business because of this and it’s just a poor strategy in my mind.”

Brad Kezema, a wealth advisor with Moneta Financial Planning in Edmonton, also gave his thoughts on the impact advisors will feel when CRM2 rolls in, but expressed a different view.

“If client protection is really the focus, segregated funds, PPNs and DSCs should all be in the same discussion,” he said. “The CRM2 rules cover mutual fees, but some advisors could just start selling segregated funds to evade CRM2 rules. So you have to wonder if the OSC is really considering the impact of these regulations as a whole.”
  • Brett 2015-03-18 12:55:06 PM
    It will be a blood bath of Advisers leaving the industry, then what/who are the general public going to use for their Advice? Doesn't this defeat the purpose of having protection for the general public/customer? Rather than ban embedded commissions etc, give the consumer the right to choose, just as they can today. Fee for service or DSC? Too many advisers don't want to speak to you unless you have in excess of $ 250,000 in AUM. Who are these people going to go too? they need the most assistance. There are many in the general public who need and want help, but do not have the ready funds to pay for it? So, will the Government have to assist them in their retirement more, naturally, as they will not have received the advice they need to accomplish their goals. This discriminates against them because they are not worth enough for some advisers to bother with. Bad news, leave the client the option. If it ain't broke, why fix it. Horror stories from the countries who have done it.
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  • Richard Pieprzak 2015-03-19 8:02:23 AM
    It looks like the return of old fashioned, stock trading and a transaction based business. Now there's transparency! Next thing will be a ban on trading commissions.
    I am really disappointed that the regulators fail to see all that we, as advisors, do for our clients. There are so many instances where we are paid not anywhere nearly enough!
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  • Ryan 2015-03-19 10:18:36 AM
    CRM 2 does nothing to protect the client.
    They will continue to fall prey to fraudsters, and client s have no idea what "CRM 2" is, or what it's for.
    CRM 2 is another layer of burden on the industry that increase cost's and reduces the level of advise that clients need so badly.
    What's next to protect clients?
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